Conflict of Interest Guidelines for District Health Boards
Released 2016health.govt.nz
Citation: Ministry of Health. 2016. Conflict of Interest Guidelines for
District Health Boards. Wellington: Ministry of Health.
Published in June 2016
by theMinistry of Health
PO Box 5013, Wellington 6140, New Zealand
ISBN978-0-947515-18-8 (print)
ISBN 978-0-947515-19-5(online)
HP 6423
This document is available athealth.govt.nz
This work is licensed under the Creative Commons Attribution 4.0 International licence. In essence, you are free to: share ie, copy and redistribute the material in any medium or format; adapt ie, remix, transform and build upon the material. You must give appropriate credit, provide a link to the licence and indicate if changes were made.
Foreword
The New Zealand health and disability sector is an inherently close community, where people with specialist skills and knowledge are in high demand. Conflicts of interest both actual and potential are an inevitable result of this environment.
The existence of conflicts is not itself a cause for concern, provided that they are managed in an appropriate manner by individuals and boards collectively.
However, effective conflict of interest management is an essential part of meeting the public’s high expectations for those working in the public health and disability system.
These Guidelines seek to underline the importance of appropriately managing conflicts in a complex and ‘interest rich’ environment. The process is essentially two-fold: the full and timely identification and disclosure of interests and conflicts, and then determining and implementing an appropriate response to such disclosures on an ongoing basis.
This guidance has been written to assist district health boards (DHBs) and board members in their efforts to continually improve board processes and meet good practice governance expectations. I trust that it will assist all DHB board members, office holders, committees and delegates.
Chai Chuah
Director-General of Health
This document provides guidance on moving toward the goal of good practice in public sector governance. It is not legal advice, and does not create new legal obligations or extend existing ones.
Conflict of Interest Guidelines for District Health Boards1
Conflict of Interest Guidelines for District Health Boards1
Contents
Foreword
Introduction
Purpose of the Guidelines
Target audience
Limitation of Guidelines
Part One – Basic concepts
Implications of DHBs being public entities
Good practice
Conflicts of interest will occur in the DHB sector
Disclosure is more than technical compliance
Disclosures need to be actively managed
Consequences of inappropriate management
Relevant legislation
Interpretation
Part two – Practical guidance
Recognising interests and conflicts of interest
Disclosing interests and conflicts of interest
Responding to disclosures
Appendix 1 – Further reading
Appendix 2 – Relevant legal provisions
Appendix 3 – Good practice
Conflict of Interest Guidelines for District Health Boards1
Introduction
Purpose of the Guidelines
These Guidelines promote good practice in managing conflicts of interest in district health board (DHB) decision-making. They reflect and build on recommendations set out in a number of relevant publications (listed as further reading in Appendix One).
The Guidelines are intended to provide a basis for assessing existing DHB conflict of interest policies and practices and for producing robust policy in the future. They are also aimed specially at assisting DHB boards to inspire confidence and maintain integrity in the public health sector, through impartial and transparent decision making. This document contains:
- a brief summary of key concepts around managing conflicts of interest in the public sector (Part One)
- a practical framework to assist in the recognition, disclosure and response to conflicts of interest (Part Two).
Target audience
These Guidelines are aimed at the following DHB people, referred to generically as ‘members’ in these Guidelines:
- board Chairs, Deputy Chairs, and members (both elected and appointed)
- board committee members
- delegates of boards and committees (ie, those exercising authority on the board’s behalf)
- other office holders (eg, Crown monitors).
They may also assist DHB employees who assist boards with conflict of interest management, and they provide some useful information for other DHB decision-making processes.
Limitation of Guidelines
The variety and broad nature of DHB operations mean that a single set of specific rules cannot be established. Conflicts of interest differ in nature and need to be considered on a case-by-case basis. These Guidelines are not:
- an exhaustive step by step guide
- a substitute for legal advice
- a set of legal requirements
- intended to create additional legal obligations.
Part One – Basic concepts
This part discusses the environment in which DHBs operate, and how this impacts on managing interests. It also discusses important legal concepts. These two aspects are built on in Part Twoto provide a practical framework for dealing with conflicts of interest.
Implications of DHBs being public entities
It is common for people involved in DHB governance to have a background in the clinical, community or private sectors. To successfully transition to a DHB board, members need to understand the distinctive aspects of the public sector environment.
The principles of impartiality and transparency
DHBs are public entities owned by the Crown. They use public funds, and act for the benefit of the public.
Members of Parliament, the media, and the public expect people who govern DHBs, whether elected or appointed members, to act impartially. They expect that decisions will be transparent and not influenced by favouritism or improper personal motives, and that public resources will not be misused for private benefit. As the Office of the Auditor-General’s report Management of conflicts of interest in the three Auckland DHBs states:[1]
Public perceptions are important. It is not enough that public sector members or officials are honest and fair; they should also be clearly seen to be so.
Impartiality and transparency have a cost. Process costs and time are obvious examples. Being impartial and transparent may at times mean making a decision that is not the most directly financially advantageous to the DHB. Those in governance roles must remember that ‘commercial return’, though extremely important, is not the only or overriding concern.
Good practice
These Guidelines endorse a ‘good practice’ approach to conflicts of interest – an approach which extends beyond strict legal compliance.
This framework has three dimensions:
- the legal dimension (which involves compliance with statute and other law)
- the ethical dimension
- the good practice dimension.
Acting ethically requires legal compliance, and implementing good practice encompasses both legal compliance and sound ethical behaviour. Further comment on this can be found in Appendix Three.
Conflicts of interest will occur in the DHB sector
The New Zealand health and disability sector is a close community. Conflicts of interest are inevitable.
The existence of conflicts is not itself a cause for concern – provided that conflicts are disclosed and responded to (both individually and collectively) in an appropriate manner. Commonly, when a conflict of interest has become an issue, the person concerned has neither taken advantage of the situation for their personal benefit nor been influenced by improper personal motives. However, their failure to appropriately disclose and manage conflicts can cause a real or perceived unfairness.
It is critical to understand that a perception of a conflict can be just as significant as an actual conflict. Whether or not the person would actually compromise himself or herself is not the only relevant consideration.[2]This is the nature of conflicts of interest in the public sector environment. A reasonable test would be how the situation would be perceived if it were drawn to the public’s attention.
Disclosure is more than technical compliance
These Guidelines promote full and open disclosure as the foundation of good interest management.
It is necessary for members to regularly review their own interests, and to fully disclose them as early as possible. This allows all concerned to understand and manage the true nature, extent, and potential implications of an interest. Proper disclosure of conflicts of interest errs on the side of more disclosure, rather than less. It is also a continual process over the course of DHB business, as interests and conflicts often change.
Disclosures need to be actively managed
Disclosure is only the first step. A board and its members must then consider how they will respond to interests that arise. The Office of the Auditor-General states:
Simply declaring a conflict of interest is not usually enough. Once a conflict of interest has been identified and disclosed, the public entity may need to take further steps to remove any possibility – or perception – of public funds or an official role being used for private benefit.[3]
Response to a disclosure – that is the board’s action following disclosure – is just as important as the disclosure itself. A board acting lawfully must consider what (if anything) it should do in the light of a disclosure, both inside and outside the boardroom. Should a member continually have ongoing conflicts of interest that prevent the member from participating in a large number of board matters, the Chair should considering bringing this matter before the Minister as it is likely that the member cannot perform their role to the reasonable expectations of the position. Part Twoaddresses the practical elements of board responses.
Consequences of inappropriate management
The potential costs and consequences of a conflict of interest not being appropriately managed can be serious. These may include cost, time, damage to the reputation of individuals and DHBs, contract cancellation, litigation, public and media scrutiny, and criminal investigation.
Relevant legislation
Most legislative provisions relating to conflicts of interest for DHBs are set out in the New Zealand Public Health and Disability Act 2000 (the NZPHD Act). A few sections in the Crown Entities Act 2004 (the CE Act) also apply, such as that dealing with the disclosure of interests before appointment, however the majority are excluded via the NZPHD Act.[4]
The NZPHD and CE Acts describeconflicts of interest requirements in a slightly different manner. However, the underlying intents are similar. By comparison, there are significant differences between the conflict of interest provisions in the Companies Act 1993 and the NZPHD Act.[5]
Members should familiarise themselves with the legislative framework applicable to DHBs. Appendix Two lists relevant provisions.
Interpretation
This section discusses some basic terms that are central to the practical steps in Part Twoof this document: ‘interest’, ‘transaction’and ‘conflict of interest’.
Interest
The term ‘interest’ refers to a non-DHB duty, role or pecuniary interest that has the potential to overlap with a member’s DHB role. This might be another public role, but is usually personal or private in nature.
Transaction
Section 6(1) of the NZPHD Act gives the following definition of ‘transaction, in relation to a DHB’:
- the exercise or performance of a function, duty, or power of the DHB
- an arrangement, agreement, or contract to which the DHB is a party
- a proposal that the DHB enter into an arrangement, agreement, or contract.
A wide interpretation of this provision is preferred, which means that ‘transaction’ is potentially applicable to nearly everything that a DHB does, including a proposed exercise of a function, duty or power. Such an interpretation advances transparency, and is consistent with a good practice approach.
Conflict of Interest
The NZPHD Act uses the term ‘interested in a transaction’ for what is commonly understood to be a ‘conflict of interest’. For the purposes of these Guidelines, these two phrases are interchangeable.
The NZPHD Act further defines ‘conflict of interest’ in relation to a person and a DHB under section 6(1) to include ‘the employment or engagement of the person, or of the person’s spouse or partner, as an employee or contractor of the DHB’.
Under the NZPHD Act, a member will be ‘interested in a transaction’ (or have a conflict of interest) where a member:[6]
a)‘is a party to, or will derive a financial benefit from, the transaction; or
b)has a financial interest in another party to the transaction; or
c)is a director, member, official, partner, or trustee of another party to, or person who will or may derive a financial benefit from, the transaction, not being a party that is:
(i)the Crown; or
(ii)a publicly-owned health and disability organisation;[7] or
(iii)a body that is wholly owned by one or more publicly-owned health and disability organisations; or
d)is the parent, child, spouse or partner of another party to, or person who will or may derive a financial benefit from, the transaction; or
e)is otherwise directly or indirectly interested in the transaction.’
In the first four categories, the concern is with the member having some form of direct or indirect financial interest in what the DHB is doing. Non-financial interests (and financial interests not caught by the first four categories) are included in the fifth category, which should be interpreted broadly.
In effect, if a member stands to gain or benefit – whether financially or otherwise, and whether directly or indirectly – from what the DHB is doing, then it is likely that a conflict exists.
However, the NZPHD Act notes that a person will not have a conflict where their interest is so remote or insignificant that it cannot reasonably be regarded as likely to influence them in carrying out their duties. What is remote or insignificant will depend on the circumstances. A person is not classed as interested in a transaction simply because they are being paid as a DHB board member.[8]
Part two –Practical guidance
This part sets out guidance on what is ‘good practice’ in recognising, disclosing, and responding to both interests and conflicts of interest.
The basis of the approach is that full and early disclosure of interests will make conflicts of interest easier to identify, and facilitate earlier opportunities for management, with the end goal being a more effective response.
Managing interests and conflicts of interest can be broken down into the following stages:
- recognising interests and conflicts of interest
- disclosing interests and conflicts of interest
- responding to disclosures.
Transactions and interests can change, and new interests/conflicts can arise at any time. Members and boards need to ensure they are aware of interests and how they relate to their DHB’s transactions.
Recognising interests and conflicts of interest
The first step in managing a member’s conflict of interest is to recognise the interest at hand. The member should consider anything from which they may gain real or perceived benefit, either financial or non-financial. Some examples of interests members should consider are:
- shares they own
- having made a donation or received a gift
- being an adviser, employee or director of another business or organisation
- being a member of a professional body
- their family affiliations
- any business proposals they are developing.
Consideration of interests is not a one-off exercise. Members should regularly review their interests and ensure the board’s interests register is kept up to date. It is the member’s duty to ensure the register is kept current.
The next stepis for the member to recognise that a conflict arises out of that interest. Early recognition, coupled with early and full disclosure, ensures the best chance of effective management. Some considerations in particular should be kept in mind.
- Areas for concern will be at the intersection of overlapping and potentially competing interests.
- Although the NZPHD Act and CE Act frameworks place a particular emphasis on financial interests, other interests are significant both legally and ethically.
- Conflicts of interest are not confined to a commercial transaction such as a tender process or contract. Involvement in policy and strategy can also lead to conflicts, often more difficult to manage than those arising from confined commercial transactions.
- If in doubt, members should consider whether a third party (such as a court or the public) would see an issue to exist. Consultation with the board Chair may assist individual members. Board Chairs, in turn, may wish to discuss matters with the Deputy Chair.
The practice of identifying conflicts of interest is ongoing. Conflicts of interest can evolve through changes in the dimensions of either a transaction or an interest. One appropriate time to consider them is upon receipt of a meeting agenda and board papers.
Disclosing interests and conflicts of interest
These Guidelines promote an ongoing process of full disclosure of interests and conflicts of interests at the earliest opportunity.
Disclosing ‘interests’ (typically in positional terms, such as ‘director of XYZ Ltd’), as opposed to ‘conflicts of interest’, is not expressly required by the NZPHD Act. However, it is recommended that such ‘interests’ are in fact disclosed (with regular updates), for the purpose of alerting members to potential issues and effectively creating an ‘early warning system’.
The obligation to disclose an interest or conflict of interest is firmly on the member with the relevant interest or conflict.
In considering disclosure, it is helpful to address what should be disclosed, when, how, and to whom.
What should be disclosed?
In the case of an interest, the details disclosed should allow an independent observer to understand what the member’s interest is, and why and how it might impact on their role on the board.
In the case of a conflict of interest, disclosure should enable an independent observer to understand the nature of the conflict, and how it could benefit the member (or other parties as per section 6(2)(d) of the NZPHD Act)and impact on the member’s role on the board.
A disclosure should also provide relevant information that enables other members to make an informed decision about how best to manage the actual or potential conflict of interest, both inside and outside the boardroom.
In order to achieve this, members should provide specific information, including (as relevant):
- the position at issue: that is, the role (eg, manager of finance or director), and its functions and duties specifically in relation to the transaction (in case of a conflict)
- in the case of a conflict, the potential value (direct and indirect) of the transaction to the member, if this can be measured
- the way in which the interest or conflict will or may impact on the performance of the member’s DHB role
- an explanation of any personal benefit – perceived, actual or potential, direct or indirect, financial or otherwise – resulting from the transaction
- historical and contextual information necessaryto properly understand the disclosure
- possible future involvements and benefits.
Members should always err on the side of caution and provide more contextual information rather than less. This could include historical details indicating their levels of involvement in interests or transactions, or could mention possible future interests or conflicts. As mentioned above, public perception is an important consideration.